Aug. 26 (Bloomberg) -- Russian President Vladimir Putin met
his Ukrainian counterpart, Petro Poroshenko, to try to ease
tension between the two countries after five months of
separatist unrest as violence flared on their border.

“Complicated” talks were held today, with the sides at
times presenting “radically different” positions at a summit
of the Russian-led Customs Union in Minsk, Belarus, according to
that country’s president, Aleksandr Lukashenko. A bilateral
meeting between Putin and Poroshenko ended this evening, the
Kremlin said. Putin said earlier he’s ready for an exchange of
opinions on Ukraine, while Poroshenko said he’s optimistic about
the meeting, which includes European Union foreign-policy chief
Catherine Ashton and Kazakhstan’s leader.

“I understand that all players who’ve been drawn into the
situation would like to exit with dignity,” Poroshenko said in
Russian before the meeting. “I’m ready to discuss different
options that would allow such an exit strategy -- an exit to a
peaceful future for Ukraine, an exit to a peaceful future for
Europe.”

The conflict between Ukraine’s government and pro-Russian
separatists has left at least 2,000 dead since Putin annexed
Crimea in March. Ukraine said today that 200 rebels and 12
Ukrainian servicemen died in the past 24 hours.

A military spokesman, Andriy Lysenko, accused Russia of
attempting to “create a new front” in the fighting close to
the Sea of Azov in the southern Donetsk region. Ukraine released
video footage of Russian servicemen it said it captured when an
armored column crossed the frontier yesterday.

Peace Plan

Poroshenko called for Russia, Belarus and Kazakhstan to
support a peace plan for eastern Ukraine, saying his nation’s
territorial integrity must be respected. He also said Ukraine’s
free-trade pact with the EU is compatible with Customs Union
rules and that his government is interested in agreements with
the trading bloc championed by Putin.

The parties agreed to hold regular meetings in Minsk,
according to Lukashenko.

The yield on dollar-denominated Ukrainian government bonds
due in July 2017 rose 42 basis points to 10.66 percent, a two-week high. The hryvnia depreciated as much as 1.1 percent before
closing unchanged at 13.55 per dollar.

Fighting raged on in Ukraine’s east. Rebels attacked the
coastal town of Novoazovsk, near the Russian border and
continued shelling Donetsk, Lysenko told reporters in Kiev. The
separatists are mounting a counterattack to the government’s
offensive, he said.

Three civilians were killed in the rebel stronghold of
Donetsk by overnight shelling that also damaged the power grid,
the city council said on its website.

Ukraine said yesterday it destroyed two tanks, captured
crew members and seized other vehicles from an armored column
flying separatist banners that advanced from Russia toward the
port city of Mariupol, west of Novoazovsk. Lysenko said today
the Russians it detained were “on a mission.”

Painted Vehicles

The video released by Ukraine’s Defense Ministry showed men
in military fatigues. Ukraine said they were Russian
paratroopers. One, named as Sergey Smirnov, said they were
ordered to paint out Russian markings on their vehicles and
paint on white circles instead before being sent to Ukraine
without documents and mobile phones.

“I didn’t even see where we crossed the border,” said
another man, identified as Ivan Michalkov.

Russia’s state-run RIA Novosti news service cited an
unidentified Defense Ministry official as saying that troops who
were patrolling the border crossed into Ukraine accidentally and
didn’t resist when detained.

U.S. National Security Adviser Susan Rice said on Twitter
that repeated Russian military incursions into Ukraine are
“dangerous and inflammatory.”

German Chancellor Angela Merkel, who met Poroshenko in Kiev
two days ago and spoke with him by phone late last night, said
“one big breakthrough” is unlikely today. Ukrainian Foreign
Minister Pavlo Klimkin said on Twitter the Minsk talks will be
“difficult,” though “the president is resolute.”

Weapons Allegations

While Russia has repeatedly denied any involvement in the
conflict, the U.S. and its EU allies say Putin is supplying the
insurgents with weapons, manpower and financing and say he could
stop the war if he reined in the separatists.

Meanwhile, Poroshenko dissolved parliament and called early
legislative elections for Oct. 26. The ruling coalition
collapsed last month when two parties pulled out to force a snap
vote. Arseniy Yatsenyuk, who became prime minister in February
after months of street protests turned deadly and led to the
ouster of the then president, Viktor Yanukovych, will remain in
a caretaker role.

Russia aims to enter the negotiations with “the strongest
possible hand,” said Alexei Makarkin, a deputy director at the
Moscow-based Center for Political Technologies.

“The Kremlin’s moves to boost the rebels’ position and
Lavrov’s hard-line statements, while seeming to contradict
Russia’s stated desire to reach a deal, are aimed at entering
the talks from a position of strength,” Makarkin said by phone
yesterday.